Tax & Legal News in English | July & August 2023

Earn-out clauses in M&A transactions: Overview and tax treatment as a part of business taxation

As an instrument for defining the purchase price in M&A transactions, earn-out clauses are often a suitable way of reflecting the expectations of the parties involved with regard to the purchase price (and thus the value of the company). As has been shown in this article in an overview, the tax treatment of an earn-out payment as a part of business taxation depends on a variety of factors and should therefore always be examined on a case-by-case basis.

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New Act Enables Permanent Virtual Shareholder Meetings

The new Virtual Shareholders Meetings Act (VirtGesG) in Austria establishes a permanent legal basis for virtual shareholders meetings, which were temporarily enabled by previous COVID-19-related legislation. The new act, which is to take effect on 14 July 2023, narrows the scope, applying to corporations, cooperatives, associations, mutual insurance companies, small insurance associations, and savings banks. It excludes partnerships and private foundations. The act mandates explicit provisions in the company's bylaws for virtual meetings and introduces three types of meetings: simple virtual, moderated virtual, and hybrid. For listed stock corporations, there are special regulations.

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Inflow principle for offsetting receivables

In its decision of 20 May 2022 (Ra 2022/15/0034), the Administrative High Court ruled that in the case of a set-off of a claim, an inflow to the taxpayer only occurs at the time the purchase price is paid and the set-off becomes effective.

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Administrative High Court on the characteristic of economic asset of mining rights and their depreciation for substance reduction

In its recent decision of 22 February 2023 (Ro 2021/15/0006), the Administrative High Court (VwGH) ruled that costs incurred in connection with the acquisition of rights to mine mineral resources must be capitalized as acquisition costs and are subsequently subject to the depreciation for substance reduction. If the land is owned by a company, the mineral resource is to be regarded as a separate asset from the land and the related expenses are to be capitalized. Mining rights on third-party land are intangible assets that cannot be capitalized, and the appropriate mining fees are compensation for use (immediately deductible operating expenses). Any additional acquisition costs for these mining rights (eg for obtaining official approval) must be capitalized.

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The Administrative High Court confirms deductibility of interest expenses resulting from hedging transactions

The Administrative High Court decided on the deductibility of interest expenses for loans, borne by an Austrian holding company to avoid exchange rate fluctuations resulting from the conversion of the equity positions of foreign subsidiaries (local currency) to Euro, to keep the consolidated equity positions stable.

Pursuant to Section 12 para 2 Austrian Corporate Income Tax Act expenses must not be deducted if they are directly related to non-taxable income. As the interest expenses are not directly related to non-taxable dividend income, they are not covered and are therefore tax deductible. Furthermore, realized capital gains and losses related to the loans obtained to avoid exchange rate fluctuations of the equity of foreign subsidiaries influencing the consolidated equity positions are generally tax deductible.

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Austrian Supreme Court decisions: The ex-wife’s right to inspect the books & the validity period of voucher cards

The Austrian Supreme Court ruled in the first decision that the ex-spouse, who is entitled to alimony has – under certain circumstances – the right to inspect the books / accounts of the companies in which the ex-spouse, who is liable for alimony, has an interest to determine the amount of the alimony claim.

The second decision provides a brief overview of two clauses in bank GTCs on the use / validity period of voucher cards, which the Austrian Supreme Court considers inadmissible.

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11th EU sanctions package against Russia

In response to Russia's war of aggression against Ukraine and the illegal annexation of the Donetsk, Luhansk, Zaporizhzhya, and Kherson regions of Ukraine, the EU has imposed the 11th sanctions package as an extension of the restrictions of Regulation (EU) 833/2014 which entered into force on 24 June 2023. At the core of this package is a new anti-circumvention instrument that allows the EU to restrict the sale, supply, transfer or export of certain sanctioned goods and technology to certain third countries where the risk of circumvention is particularly high.

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FlexCo - Special share class for employee participation

With the introduction of the Flexible Company (FlexCo) in Austria, a new share class which particularly aims at employee participations, may now be created besides the normal share class. The so-called enterprise value shares entitle the shareholder to a financial participation in the profits of the company and exit proceeds, but not to co-determination in the company (i.e. in particular they have no voting rights). Shareholders of this share class are not required to be individually registered with the Austrian Commercial Register (but only in a share register kept by the company) and have a statutory tag-along right, in particular in the event of an exit.

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Federal Ministry of Finance on home office as permanent establishment

In the most recently published EAS 3445 the Austrian Federal Ministry of Fincance once again deals with the question of whether a permanent establishment can be established through home office. The case at hand concerns an accounting employee of a German holding company who is resident in Austria. The employee works three days a week in the office provided by her employer in Germany and two days per week from home in Austria. In the EAS, the Austrian BMF stated that in such a case, if a workplace is available for permanent use and the employer does not require the employee to work from home, no permanent establishment would be established due to the home office. This is the case because the employer does not have de facto power of disposal over the home office.

However, the Austrian Federal Ministry of Finance leaves the question open whether the same arguments would also be true for managerial staff or executives (e.g., CFO).

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Update on the obligation to publish the annual financial statements in the official journal

After the Wiener Zeitung has been discontinued in print form as of 30 June 2023, the mandatory publication of the annual financial statements of large stock corporations in the official gazette of the Wiener Zeitung is no longer possible. However, this does not change the obligation to publish financial statements - the process has simply been digitalized and the announcements will be made available on an electronic platform in the future.

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Tax Deadlines in September 2023

Advance VAT declaration for July 2023.
Standardized Consumption Tax for July 2023.
Capital Gains Tax for capital gains on debt securities for July 2023.

For an overview of all Tax Deadlines in September click here...